Multinational Enterprise - Essay Example

Multinational Enterprise UNCTAD reports of and The report showed that the average global foreign direct investment (FDI) declined by 18% to $1.35 trillion. In 2012, developing countries accounted for the greatest percentage of FDI flows that estimated at 52%. This growth was due to 32% decline in FDI inflows in the developed countries. In fact, the global rankings of the biggest FDI recipients reflected the spontaneous changing patterns of global investments, as 9 out of 20 ranked recipients were the developing states. The gain of the developing Asian countries maintained at historical high levels but with a weakened momentum. The FDI flows to the Asian countries declined by 7% to $407 billion compared to previous year. The South American countries experienced a 12% increase in FDI inflows, which were results of a mixture of market seeking and natural resource seeking activities. African countries on the other hand experienced FDI increase of 5% to $50 billion on a year-on-year in 2012. In Africa, the growth was due partly to increased activities in the extractive industries. However, investment and manufacturing industry for consumable goods is also expanding. The developing economies also registered increase in FDI outflows that reached 31% that represented $426 billion. Even as the global economy experienced downturn, TNCs from the developing economies sustained their expansion overseas. The Asian countries accounted for the largest portion of global FDI outflows from the developing countries. The 2014 report of the UNCTAD showed some considerable growth in the global FDI. The inflows increased by 9% to hit $1.45 trillion in 2013. In 2013 as represented by the UNCTAD’s 2014 global investment report, there were slight changes as flows due to developed countries also increased. The FDI flow to the developed countries increased by 9% to reach $566 billion in 2013. This growth made developed countries to account for 39% of the global flows. Developing countries also experienced slight increase in their global FDI flows that reached $778 billion, which is 54% of the total. In spite of the growth, the performance of the developing countries was 7% down the average of 10 years that reached 17%. The developing Asian countries had the highest inflows of FDI. In the growth, developing African countries experienced a 4% increase, with FDI outflows at $12 billion and inflows at $57 billion. The Caribbean and the Latin America collectively registered a 6% increase, with inflows at $292 billion and outflows at $115 billion. This time, South America registered 6% decline in its FDI flows. Combined, the FDI flow to the European Union and the United States declined to 30% in 2013. In particular, North America had FDI inflows reaching $250 billion and outflows reaching $381 billion. The European Union had FDI inflows in 2013 reach $246 billion and outflows at $250 billion. From the two reports, the developing economies have proved consistently that they are the best destinations for FDI inflows. The consistency and the continued efforts by the governments of developing countries to reform economic policies are indications that FDI flows will continue to be high towards the countries. Economies in transition experienced 9% decline in inward FDI flows in 2012. The decline attributed to a decline in cross-border M & As sales. According to the UNCTAD’s 2013 report, even as the FDI flow declined that much, major economic indicators such as GDP, employment and international trade registered growth in the global spectrum. The decline in the general global FDI flows relates to uncertain economic situation and fragile financial markets. The uncertain policy due to economic fragility in major economies made investors to exercise great caution in their investment trends. The fear made many Transnational Corporations to re-profile their investments through acts such as relocation, divestment and restricting assets. The general impact has been uncertain future of recovery of the global FDI flows. In spite of the fact that foreign direct investment (FDI) recorded in 2012 being low, international production grew steadily in 2012. The growth was due to FDI flows adding to FDI stock in existence at that instant. The FDI stocks that account for the rise increased by 9% to reach $23 trillion. The foreign investments of transitional corporations (TNCs) raised sales amount to $26 trillion of which $7.5% was for exports. Most TNCs from the developed economies experienced a stagnated growth in the international production in 2012 (UNCTAD, 2013). According to the 2014 report, FDI outflows from the developing countries hit a level high, as many Transnational Corporations (TNCs) moved to acquire foreign affiliates in their regions. The expansion of the TNCs of the developing economies overseas was far much rapid in 2013 than those of the developed economies. However, the expansion was equal to their domestic operations leading to sustained stable internationalization index. The 2014 report depicted developing countries as the biggest recipients of the global FDI inflows. The remaining balance of the global FDI flows of $108 billion went to the transition countries. The global M &A and Greenfield projects regained momentum and grew by 14% and 32% respectively. However, Greenfield investment in developed and transition economies declined to nearly zero, leaving developing countries as the main beneficiaries. Despite the uncertain global economic future, the international production increased by 9% in sales, 8% in assets, 6% in value added, 5% in employment and 3% in exports. Fluctuations in FDI between 2012 and 2013 Global FDI Flows by groupings in billion dollars 2012 2013 Global FDI flows 1330 1452 Developed economies 517 566 Developing economies 729 778 Transition economies 84 108 Global FDI flow growth rate by groupings in percentage 2012 2013 Global FDI Flows -21.8 9.1 Developed economies -41.3 9.5 Developing economies 0.6 6.7 Transition economies -11.3 28.3 Internationalization theory and transnational monopoly The claim by the theory of internationalization that FDI only occurs when the value of exploiting the firm-specific advantages (FSAs) in the cross-border businesses exceed the cost of operation in the foreign markets is valid. All businesses have high profitability as their central purposes for operation. Firms are always willing to invest in operations that can increase their profit margins above the current levels. Expansion into foreign markets is only reasonable and possible if the particular firms forecasts possibility of raising revenues on their operations. The argument by the internationalization theory that multinational corporations are vulnerable to incur adaptation costs is true (Buckley, 2014). However, the MNs manage to overcome the challenges by exploiting natural resources recklessly to escalate their profits. The companies mostly do no adhere to the local laws as does the domestic companies. The MNEs use their economic powers to manipulate host governments to relax regulations so to secure employment for the citizens. Laxation of standards including environmental ones enables the companies to make profits and grow rapidly (Maheshwari, 1997). Many of the MNEs have also under-invoiced their exports to pay lower taxes to the host governments had maintain their profits higher. The proponents of the internationalization theory held that a country factor is superior over firm factor in determining multinational expansion of multinational enterprises. Country factors entail things such as taxation, foreign exchange rates, consumer behaviors, rivalries and interest rates among others. The theorists further elaborated that firm factor, which majorly relates to firm-specific advantage (FSAs) cannot encourage or determine expansion in solitary. Firms have to check on the national factors of target economies to determine profitability of such ventures. FSAs only become relevant if the economic factors and business environments in the destination market are sustaining and assure profit. The arguments are valid and practical even in the real business environment considering that governments struggle to adjust their economic policies to attract FDI. It is perhaps for the reason that many US firms expanded their operation to China when the Chinese government eased economic policies that attracted many foreign firms. As a result, the China economy has grown tremendously, even as the American MNCs register good profits. The firms have identified countries with weak institutions to bribe trade and industrial officers as well as evade taxations, which leave them huge profits to expand further. As expansion continues, the firms strengthen their grip of the political and legal structures in the host countries to manipulate processes and systems for self-growth and power. For some Multinational Enterprises to succeed in the foreign markets, they involve in competitive price strategies. Having the advantage of international branches, MNEs can decide to enter a new market with considerably low prices in the given industry and supplement the deficit with profits made in favorable markets. For instance, a Korean phone company can enter European market and offer products at lower prices to lead to losses. The company can then subsidize the losses within Europe by using funds from profitable Asian branches. Through this strategy, MNEs have managed to oust local firms out of business, and raise product after gaining monopoly (Maheshwari, 1997). The internationalization theory also views success of MNEs as attributable to the aggressive advertisement, fixing prices and rigging bids. The companies involve many corruptions to obtain favors turned into profit maximizing opportunities. The theory of internationalization also considered profitability of firms depending on the levels of innovation that can only result from research and development (R&D). With this kind of analysis, the authors of the theories seemed aware of the high global competition in every industry. The stiffness of the competition is so serious that firms must invest in R & D to identify unique technologies to foster their competitive advantages. The firms do not bother about the fate of the foreign countries and introduces high technologies from their mother countries. These high technologies have helped the MNEs to use few workers and cut on labor costs that have stimulated growth of profits and subsequently success. The transnational monopolistic capitalism is the concept that analyzes the current economic condition of the world. The globalization of the world economy has seen firms struggle to exist in many countries. Monopoly is under constant evolution that conforms to the changing manner of global business expansions. Big rival firms set prices of products in their respective industries create an oligopolistic sphere. The firms then use their advantages to prevent entrant firms from penetrating the market. The firms further use their size advantages to promote sales magnitudes through practices such as marketing and cost cutting strategies. As much as transnational investment promote health competition, at some points it becomes unhealthy especially when firms begin developing monopolies. According Cowling and Tomlinson (2005), transnational corporations create and spread economic stagnations to the world economy and low demand. Transnational corporations spur rate of production, which ultimately lead to surplus supply. Demand problems begin to develop when transnational corporations merge to form somewhat oligopolistic structures where prices for goods by different producers do not vary significantly. The firms also establish and influence economic processes that see them offer level compensations for labors. This makes them offer poor wages and compromise demand levels for their goods and services (Dickens, 2015). According to Cowling and Tomlinson (2005), the transnational monopoly capitalism encourages rivalry. Rivalry here means that all firms must be in positions to defend against rivals by ensuring that the latter do not make profits at the expenses of the former. The firms must also attack by using the determent of rivals to maximize profits. The general scenario means that firms end up seeking strategies to have high retaliatory powers. In fact, firm can use their worldwide resources and production to retaliate against certain rivals. The ultimate outcome is that firms become transnational to pursue profits in a collision and rivalry environment follows from profit maximizing abilities. Casson (2014) elaborates that the big multinational firms use their advantages of economies of scale to frustrate and drive local rivals out of business. Since they are big and have significant recognition, consumers tend to prefer their product because of informed value expectations (Foster, McChesney & Jonna, 2011). It is for the reasons that Starbucks Corporations tend to succeed in its foreign investments because consumers already know what to expect. This aspect of transnational corporations contributes to their business advantages. According to the concept of transnational monopoly capitalism, transnational companies gave great detection potential. The power attributes to their abilities to collect, process and utilize information to their advantage. This capability enables the companies to secure and fix higher costs and higher market power (Ietto-Gillies, 2012). The desire to control more markets and subsequently make higher profits leads to more monopolization. The views by Cowling are valid considering that most firms become transnational due to the risks faced and lead to want to defend against rivals. Firms also become transnational because of the advantages that make them attack rivals. Most of the MNCs make large profits that go into research and development purposes. The cost of research is usually high and only the big firms can afford. Actual example is the oil industry that is risky and requires heavy investment in research and development to raise good profits. The same case applies to the drug industry where only the multinational corporations dominate and manage to establish monopolies that are hard to overcome. The companies usually make use of their superior technological and scientific potentials to portray as capable of offering unique products, while at the same time exploiting the local resources at the loss of local firms (Ietto-Gillies, 2012). The oligopolistic aspect of the transnational firms relates to the adoption of the divide and rule strategy. The strategy mainly targets labor in the destination country, which the TNCs weaken. Attacking labor force leaves labor with lower bargaining power that is usually an advantage to offer low pays for services. The concept also points that most TNCs come from developed countries and flow towards the developing countries. This view relates to the flow of the greatest share of FDI to the developed economies. According to Dickens (2015), transnational monopoly has also developed due to the cunning nature of the transnational and multinational corporations (TNCs & MNCs). The businesses have the tendencies to influence national and local governments to reform their policies, and make them to compete so to attract investments. The design of the practice is usually strategic to ensure that the governments give them great privileges with which they enter the markers easily and begin exploiting their advantages. Usually, the foreign investors ensure that the policies favor them most and coupled with international identity, begin to dominate and monopolize even the local market at the expense of the competitors. The ones that enter economies with skilled labor tend to raise their wages slightly to attract workers at the demise of the local investments. The case is real in UK where foreign automobile manufacturers established businesses because of availability of skilled laborers that ditched their employers to receive good wages arriving companies. Foreign investors also use their transnational distribution to concentrate powers used to manipulate the national and local governments until they establish monopoly. The companies usually apply their technological prowess and intellectual property alongside their big sizes to threaten governments about withdrawal so to influence business policies (Foster, McChesney & Jonna, 2011). In some cases, the companies bargain for tax breaks that become more favorable to ensure great advantage over the local businesses. Others also destroy the natural resources by using non-renewable energy that destroy the environments but accrue high profits (Maheshwari, 1997) Impact of Nissan corporations on the UK business environment, using Labor criteria Since its introduction in 1981 and beginning of operation in 1984 in Sunderland, the Nissan Corporations has influenced greatly the UK labor trends. The company began its operation with just 470 workers who had the mandate to produce about 24000 units of Bluebird brand a year, while working on a single eight-hour turn. Currently, the company boasts of having approximately 6100 UK employees in its payroll. The company has also created indirect supplier jobs estimating at around 12000 within Sunderland only (Jones, 2009). There were speculations that the company was going to increase its employee population to 6500 in 2014 when it increases its production activities, and operate on a 24/7 basis. The entry and existence of Nissan in UK has led to democratic labor behaviors within multinational corporations with the competitor car manufacturers like Toyota and Honda corporations (Great Britain, 2007). Nissan supported need by the three companies to encourage just-in-time mobility of workers across the industry. In the plan, workers from the three companies would move freely and serve in the companies to transfer critical technology needed for a sustained, consistent and flexible production system. The move arose due to the inadequacy of skilled scientists, engineers and technologists in the UK. The strategy by Nissan has seen many MNCs in UK encourage flexibility and offer nearly level higher wages than domestic companies in the specific industries. From the hyper-globalists perspective, the arrival of and eventual success of Nissan in UK has worked to kill the local companies. Nissan UK took good advantage of the free market in the economy to attract skilled labor to its side. By taking majority of the skilled workers, Nissan UK has dealt the local car industry a blow (Dickens, 2015). Companies like Renault are underperforming at the expense of Nissan. The skilled workers are able to conduct effective researches that support further development of the product. The attractiveness of the Nissan car models as well as cheap pricing of the car brands makes it easier for the consumers to buy and to gain greater competitive advantage over other car manufacturers. The style of competitive strategy adopted by Nissan UK of targeting skilled workers and offering good salaries is transforming the nature of business competition in UK. Companies in UK are considering investing on labor and supporting research as well as innovative efforts of the workers. Nissan UK also encourages creativity and gives incentives to the hardworking employees. It is through such support and relationship with labor that workers become motivated and desire to lift status of their companies. With such high levels of job satisfactions, many employees of Nissan UK do not want to leave the company for other ventures. The level of retention of employees in Nissan has seen other employers in the sector struggle to improve their strategies to benefit from the similar advantages. The attractiveness of the Nissan UK to many employees has generally made labor in the UK car industry expensive contrary to its initial state before arrival of the Nissan. Additionally, the increase in the cost of labor in UK have shown has led to increased disfavor of the UK as investment destination. In fact, the recent UNTAD reports particularly of 2012, 2013 and 2014 have shown significant decline in FDI inflows into UK (UNCTAD, 2014). The MNEs that continue exist in UK do so not because of cheap labor but because of stable consumer market. Actually, UK and European consumers provide the biggest market for the Nissan car brands produced in UK (Berber, 2013). By estimation, the Sunderland plant for Nissan car brand accounted for 70% of the total sold in Europe. About 19% of the cars produced in the Sunderland manufacturing plant for Nissan sold in UK (Hawes, 2014). The remaining 71% of the total units produced in Sunderland sold in the other European countries. In general, Nissan Corporation being one of the earliest multinational companies to invest in UK has been working with skilled laborers. The dependence on skilled laborers by the company has also influenced other multinational corporations to work only with the skilled workers. Majority of the car manufacturing MNEs operating in UK are increasingly focusing on employing skilled workers only. The growing interest in skilled workers who also have surety of good pay is making many citizens of UK to seek higher skills so to fit in the increasingly high-tech market. Unskilled workers majorly serve in the local based corporations (Hawes, 2014) The impact of the Nissan Corporation has been contribution towards efforts by multinational companies to prefer skilled workers only, and leave unskilled workers to the local corporations. This situation has been a factor of the oligopolistic practice by the foreign businesses (Aswathappa, 2010). In the practice, Nissan Corporation alongside other multinational automobile manufacturers like Honda and Toyota offer higher pay for skilled workers to prevent them from seeking for greener pastures. The corporations have also enabled their skilled workers to move only within their premises, and limit transfer of knowledge within their alliance (Needle, 2004). It is probable due to the higher pay that Nissan Corporation offers to its employees that the company has never experienced worker strikes. Many multinational corporations have the tendencies to want to fight labor unions so to use vulnerable labors to their own advantage. As a multinational company, Nissan Corporation also has problems with labor unions and does not pleasure having workers organized into unions. However, the case is different in UK Nissan branch (Ietto-Gillies, 2012). As at the time Nissan started its operations in the UK, the country characterized with frequent labor unrests and strikes as many car manufacturing companies discouraged labor unions. As result, Nissan Corporation lacked a way to escape the problems of the strikes, and allowed its workers to organize a single union (Needle, 2004). The personnel director Peter Wickens advised that non-unionization and several unions would lead labor wrangles within the company, and single union established on mutual agreement between employer and workers would help ensure stability. Workers and their many unions organized into Amalgamated Union of Engineering Workers (AUEW), and signed deal with the employer before operations could start in 1984 (Binna, 1996). The deal advocated for mutual trust, cooperation, and commitment to quality, competitiveness and productivity using modern technologies. The deal further encouraged a need for flexibility and change to maintain the company’s competitive edge, and a belief in direct and open communication (Needle, 2004). Workers at Nissan Corporation sign for two-job classification with no specification to promote the idea of flexibility. Team leaders or supervisors of the different departments have the right to enlist and employ workers. Nissan Corporation in UK has managed to utilize the agreement in the deal to introduce technologies that reduce labor force but receive no strong opposition. Using robots, the company has managed to increase productivity and had employees convinced about the increase (Great Britain, 2007). Other multinational organizations have also emulated similar criteria to replace human labor with machines in bid to increase productivity and cut costs. The approach of the company of adopting single union, no-strike deal and insistence on productivity, quality and continuity has given it an edge in shaping labor trends in the UK market (Susman, 2007). Through the practice, Nissan Corporations has managed to reduce significance of labor unions in UK. Labor bargains are a matter of Workers Council made of representatives of different departments. During labor bargains, even the non-unionized, manual and non-manual employees are subject to representation. The style of unionization accepted by the Nissan Corporation is a minimum disruption strategy. The company has managed to influence other multinational corporations such as Renault through merger and competitions, which have reduced labor wrangles and significance of labor unions in UK. Toyota and Honda plants in UK are also trying to emulate the strategies adopted by the UK Nissan plant (Susman, 2007). Nonetheless, the emulators have not perfected their strategies considering that it the style of labor unionization they are copying is an afterthought. The companies lacked the strategy in their initial plan and so are facing difficulties in implementation. References ASWATHAPPA, K. (2010). International business. New Delhi, Tata McGraw Hill Education. Berber, T. (2013). Europe’s labor market reforms take shape. . BINA, C. (1996). Beyond survival: wage labor in the late twentieth century. Armonk, NY [u.a.], Sharpe. Hawes, M. (2014). The UK Automotive Industry and the EU. . 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